Study Tools

Economic Growth

Standard of living

Convergence

Increased productivity does not create unemployment because it opens new markets
and introduces new products that make up for any decrease in the labor
required for the production of the old products.

Problem :

What are the effects of lagging productivity?

In general, a country that lags in productivity will have both lower wages
and lower living standards than a country with higher productivity.

Problem :

Why do lags in productivity create both lower wages and lower living standards?

If we assume that all economies trade on the open market, than a country
with lagging productivity must nonetheless price its goods at the same level as
more productive countries if it hopes to sell on the international market.
In this case, the only way for the lagging country to produce the good at a low
price is to pay labor a low wage. If labor receives a low wage, workers are
unable to provide or enjoy a high standard of living.

Problem :

What does a high standard of living entail?

While this judgement is relatively subjective, there are a number of factors
that seems to be common to most economists' ideals. These include physical
possessions, nutrition, health care, and life expectancy.

Problem :

What is GDP per capita and what does it measure?

The GDP per capita is calculated by dividing the nominal GDP in a common
currency, say US dollars, by the total number of people in the country. This
gives the average income to which each member of the population potentially has
access. In other words, the more money each individual is able to access, the
higher the potential standard of living.